Getting the balance right: innovation, trust and regulation in retail payments

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Central banks in the euro area strive to strike the right balance between improving the efficiency of retail payment services, safeguarding trust in payment systems and fostering further market integration in an environment that is still prone to fragmentation. This is a substantial challenge, as retail payment markets have undergone a major transformation process over recent years.

In Europe, harmonised SEPA payment instruments have just replaced national credit transfers and direct debits, resulting in billions of monthly payments now being based on the same business and technical standards. Two important EU legislative initiatives (proposals for a revised Payment Services Directive and a regulation on interchange fees) will continue to affect the retail payments market, especially the card payment business and the market for innovative payment services. Another new piece of EU legislation (the Payment Accounts Directive) will bring about a high degree of price transparency in payment account services and aims to promote financial inclusion. Technological advances are driving the development of an increasing variety of services, including new person-to-person payment solutions and instant payment services for end users. New concepts of market structure and new types of business model are being discussed and could be put into practice.

All the above will have an impact on payment behaviour and payment methods used. It may raise new questions on how to ensure trust in retail payment schemes and systems. In addition, owing to regulatory and technical developments both in Europe and beyond, new players are entering the market, challenging the role of the incumbent payment service providers and their payment solutions. Furthermore, the continuous trend of globalisation and growing international trade has fostered the call for more efficient cross-border payment solutions.